Waterloo Wholesale Corp. entered into an irrevocable contract to buy 1,000 kilograms of amorphous silica for $40 per kilogram for resale purposes. Waterloo intends to resell the silica to local cosmetic manufacturers for $60 per kilogram. The contract was entered into on November 30, 2020, for delivery on January 15, 2021. Waterloo’s year-end is December 31.

On December 18, 2020, Waterloo’s supplier reduced the price to $24 per kilogram due to adverse market conditions.

Required:

a. Outline the required accounting treatment assuming that Waterloo expects it can sell the silica for $36 per kilogram.

b. Outline the required accounting treatment assuming that Waterloo expects it can sell the silica for $45 per kilogram.